Japan changes biomass subsidies in response to rapid demand growth

January 25, 2018

Written by FutureMetrics

Jan. 25, 2018 - At the end of 2017, Japanese regulators announced plans to halt the issuance of set price Feed-in-Tariff (FiT) subsidies for most biomass power plants. Instead, the Ministry of Economy Trade and Industry (METI) will offer a set amount (in MWs of capacity) of FiT contracts for potential suppliers to bid on under a new tendering system.

The announcement comes after the government received an overwhelming response to the FiT subsidy, which was first introduced in 2012. As of September 2017, METI had already issued contracts for more than 16 GW of biomass capacity, far greater than the agency's target of 6-7 GW in 2030. METI has already taken the step of reducing the fixed FiT price for "general wood," which includes pellets, imported woodchips, and palm kernel shell (PKS), from 24 ¥/kWh to 21 ¥/kWh, starting in the fourth quarter of 2017.

METI estimates that the FiT contracts it has issued would put a burden of 1.8 trillion yen ($16.2 billion) on electricity providers, and therefore ratepayers. METI believes that they have sufficient certified capacity under the FiT, and the new system will allow for more predictable budgets and the potential for cost reduction. The new system does not, however, impact capacity that has already been certified under the FiT at 24 or 21 ¥/kWh. The first round of bidding will take place in FY2018 (April 1, 2018 to March 31,2019), with a total pool of 200 MW of capacity available for tendering. The maximum bid price is set at the previous FiT level, 21 ¥/kWh.

FutureMetrics believes that this policy change reflects the success of the biomass FiT program. If anything, the program was too successful, leading METI to scale back support for future development. The update likely means that METI has a high degree of confidence that many, though certainly not all, projects supported by FiT contracts will come to fruition, and they are trying to lessen the effect of greater-than-anticipated subsidy burden on its citizens. A similar change was made to solar energy subsidies in 2017.

Further analysis on the new policy changes and a comprehensive review of Japanese biomass policy drivers are included in an updated report from FutureMetrics. The report includes detailed analysis of supply, demand, and economics for wood pellets, woodchips, palm kernel shell (PKS), and domestic biomass in Japan.

FutureMetrics projects Japanese wood pellet demand will increase from 500,000 tonnes in 2017 to 9.5 million tonnes in 2025. Total biomass demand in Japan is expected to increase from 7.6 million tonnes in 2017 to 23 million tonnes in 2025.

The 73-page report explains in detail the basis for these forecasts. Download a copy of the Table of Contents.